Monday, February 11, 2019

"As more older Americans 'age in place,' millennials struggle to find homes"

by Bill McBride on 2/11/2019 02:55:00 PM

Diana Olick at CNBC has an interesting article: As more older Americans 'age in place,' millennials struggle to find homes

With more seniors than ever aging in place and choosing not to sell the family home, an estimated 1.6 million fewer properties are now available in a market already experiencing a critical shortage, according to Freddie Mac.

"We believe the additional demand for homeownership from seniors aging in place will increase the relative price of owning versus renting, making renting more attractive to younger generations," said Sam Khater, chief economist at Freddie Mac, who estimates that the current market needs about 2.5 million more homes to meet demand.
CR Note: If the Boomer's follow the behavior of the previous generations, many will stay in their homes ("age in place") until they are in their '80s (some until they pass away). Since the leading edge of the Boomer generation is only about 75 right now, it will still be a number of years before a large number of older people will move to retirement communities.

And, even when people move to retirement communities, many will not sell their homes. They will rent them instead - especially in the higher priced areas with significant capital gains - since they have to pay capital gains if they sell (above $250K exclusion for single, $500K for married), but the property steps up in value when they pass away.  So they can leave the property to their kids with no taxes.

This could be fixed with policy changes.  Either eliminate "step up" basis (take away the incentive to hold), or give older homeowners a one time unlimited exclusion (so they can sell while they are alive).

Aging in place is great for the senior, but what frequently happens, is a four bedroom house is occupied by just one person (inefficient).    This is another area where zoning changes could help - let the senior sell her larger family home without tax consequences, and move to a smaller home in the same community (so they can keep their local ties).